Russia and Ukraine reach new gas deal

A meeting between Russian President Dmitry Medvedev and Ukrainian counterpart Viktor Yanukovich have reached agreement on gas prices and volumes for coming years.

Meeting in Kharkov, in Eastern Ukraine, the leaders came to agreement on a number of strategic issues which have divided the two nations. Gas relations will be underpinned by signed agreements which will see gas prices for Ukraine cut by 30% up to the value of a $100 dollar discount on every 1000 cm3 of gas purchased at a price of $330. Ukraine has also agreed to import 36.5 billion cubic meters this year, of which 30 billion cubic metres will be at the discounted price, and 40 billion cubic metres in 2011.

Russian President Medvedev said the new agreement would help alleviate Ukraine’s economic problems.

“The crisis seriously hit Ukraine. Our Ukrainian partners will receive a discount in gas price. These funds will become a real resource for them. As a result of the signed agreements Ukraine will save money which can be spent on internal economic goals," Medvedev said.

Gazprom will not bear the brunt of the discounted supplies for Ukraine with CEO Aleksey Miller stating that the company would reduce payments into the Russian budget accordingly, and that the agreed volumes being sold to Ukraine were more than initially planned.

“The decline in price will be compensated by lower export duty which Gazprom pays to the budget. So this won’t hit the economy of Gazprom. New terms will allow our Ukrainian partners to increase gas purchases to 36.5 billion cubic meters this year. That’s almost 3 billion more than initially planned.”

The cheaper gas will allow Ukraine to comply with International Monetary Fund conditions ending domestic subsidies which will enable further bailout funding for Ukraine from the global lender.